FUTA CREDIT REDUCTION Imposed on Employers in 24 States

Thursday, October 06, 2011

Possible FUTA Credit Reduction Imposed on Employers in 24 States for 2011:

This change is relevant to your business if you are subject to Federal Unemployment Tax Act (FUTA) taxes and have employees who work in the 24 states listed below.

A number of FUTA-related changes this year could impact year-end filings. This notice is to make you aware of the recent FUTA rate change and possible future state credit reductions and to assure you that CertiPay will continue to monitor the situation.

As of 6/30/11, the FUTA surcharge of 0.2% expired. This caused the FUTA rate for employers to change to 6.0% starting on July 1, 2011 from the original 6.2%. The full credit available to employers for timely remittance of their SUI taxes remains at 5.4%. This means that the net change for the FUTA tax rate went from 0.8% to 0.6%.

The IRS is working to revise Form 940 to accommodate the two different rates for the year. The form will be available prior to the January 31, 2012 due date. Wage information for the first period (January 1- June 30) will be captured from the total YTD wages used for the first two quarters and will reflect the 0.8% rate. As the remaining quarters' values are accumulated, the amounts will be used to determine the FUTA liability for the 'second' half of the year and will be reported at the 0.6% rate.

Information You Need To Know

There are potentially 24 or more credit reduction states that will require employers to pay additional FUTA based upon the $7000 per employee wage limit. The official states will be determined by the Department of Labor (DOL) and announced after November 10, 2011. There are a number of changes that are still pending legislation and no additional guidance is available at this time. However, the tentative states and potential FUTA reduction rates include:

AL (0.3%), AR (0.3%), CA (0.3%), CT (0.3%), FL (0.3%), GA (0.3%), ID (0.3%), IL (0.3%), IN (0.6%), KY (0.3%), MI (0.9%), MN (0.3%), MO (0.3%), NC (0.3%), NJ (0.3%), NV (0.3%), NY (0.3%), OH (0.3%), PA (0.3%), RI (0.3%), SC (0.6%), VA (0.3%), VA (0.3%), WI (0.3%).

CertiPay Response

CertiPay will continue to monitor this situation and will provide further details as soon as possible.

You should prepare to accumulate and set aside funds for this potential tax liability. It's unclear when the pending legislation will be finalized.